Economy may be at VAT tipping point

IRELAND MAY have reached “a tipping point” in terms of the ability to raise additional revenues through further VAT increases, tax experts Grant Thornton have said.

Responding to yesterday’s exchequer figures, Peter Vale, tax partner in Grant Thornton, said he had expected to see a significant increase in the VAT receipts compared with the same period in 2011 as the top VAT rate had increased by 9.5 per cent in real terms.

“The figures do not show that to be the case. While the tax take is up on last year, the VAT returns likely indicate a drop in retail sales compared to the same period last year.”

Grant Thornton questioned the suggestion by the Irish Fiscal Advisory Council that an extra €400 million in budget measures is required to meet Ireland’s deficit targets.

“It is clear that we are making progress on righting the public finances. However, it is important to question the deflationary impact of these policies, and this is where the drop in consumer demand evidenced in the VAT figures is a key indicator.”

Bloxham Stockbrokers also disagreed with the recommendations by the advisory council.

While noting that the tax receipts for the opening quarter were encouraging, chief economist Alan McQuaid warned against further austerity as suggested by the council.

“We certainly wouldn’t be advocating the Government implementing more fiscal austerity . . . More austerity than is absolutely necessary would in our view send the economy backwards instead of forwards, as required at this juncture.

“The onus now should firmly be on promoting growth, not dampening it further.”